Midterm 1
how responsive quantity demanded is to a change in price.
price elasticity of demand measures
the increase in quantity sold is large enough to offset the lower price.
When demand is price elastic, a fall in price causes total revenue to rise because
product market.
When you purchase a new pair of jeans you do so in the
vertical; downward sloping
A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand.
a change in the price of toothpaste.
A movement along the demand curve for toothpaste would be caused by
increasing opportunity costs as more and more of one good is produced.
A production possibilities frontier with a bowed-outward shape indicates
the process by which individuals acting in their own self−interest bring about a market outcome that benefits society as a whole.
Adam Smith's invisible hand refers to
the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
Along a downward−sloping linear demand curve,
economic growth
An outward shift of a nation's production possibilities frontier represents
declines.
As a consumer consumes more and more of a product in a particular time period, eventually marginal utility
the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.
Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts more than the demand curve. As a result
the price of sports magazines has to fall.
Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines,
linear
If the production possibilities frontier is ________, then opportunity costs are constant as more of one good is produced.
0.5
Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
at a lower opportunity cost than any other producer.
Comparative advantage means the ability to produce a good or service
sunk costs.
Costs that have already been incurred, and which cannot be recovered, are known as
percentage change in quantity demanded of one good divided by percentage change in price of a different good.
Cross−price elasticity of demand is calculated as the
make themselves as well off as possible.
Economists assume that the goal of consumers is to
consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them.
Economists usually assume that people act in a rational, self−interested way. In explaining how consumers make choices this means that economists believe
restaurants
For which of the following products is social influence likely to have the greatest impact?
ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give it away or not
Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme Ramotswe, why does she not simply give away the new pair, she said: "But I paid so much for it."
the endowment effect
Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a long−time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it. Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero. This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior?
Some people are overly optimistic about their future behavior.
Health clubs typically experience an increase in one−year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior?
1.62
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
MUP has decreased and Callum should buy less of this good.
If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good MUP, and what should Callum do?
should buy more apples and fewer oranges.
If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe
wants to consume more ankle socks and fewer bandanas.
If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she
relatively elastic.
If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
an inferior good
If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is
the marginal utility per dollar spent on all goods will be equal.
If a consumer always buys goods rationally, then
5 utils.
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is
demand has increased.
If a demand curve shifts to the right, then
change price a little bit and observe what happens to total revenue.
If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could
inferior.
If a good has a negative income elasticity of demand, this indicates that the good is
Less than 1
If demand is inelastic the price elasticity of demand is
it has to give up some of another good and incur some opportunity costs.
If society decides it wants more of one good and all resources are fully utilized, then
remain constant.
If the demand for a lifesaving drug were perfectly price inelastic and the price doubled, the quantity demanded would
it falls
If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?
one that sells a luxury good
If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of
the price of the product and hold everything else constant.
In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change
change in buyers' incomes.
Income elasticity measures how a good's quantity demanded responds to
Demand is likely to be relatively inelastic.
Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
S decreases, D no change, P increases, Q decreases.
Let D= demand, S = supply, P = equilibrium price, and Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
extra satisfaction received from consuming one more unit of a product.
Marginal utility is the
the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars
Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because
the price of the good changes
One would speak of a change in the quantity of a good supplied, rather than a change in supply, if
how responsive suppliers are to price changes.
Price elasticity of supply is used to gauge
produce a combination of goods that lie outside its own production possibilities frontier.
Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except
People measure the value of a good in terms of its purchase price.
Standard economic theory asserts that sunk costs are irrelevant in making economic decisions yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?
2.69
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? Use the midpoint formula.
A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
Suppose the value of the price elasticity of demand is −3. What does this mean?
A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
Suppose the value of the price elasticity of supply is 4. What does this mean
Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision.
Suppose you pre−ordered a non−refundable movie ticket to Avengers: Infinity War. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?
a budget constraint.
The amount of income a consumer has to spend on goods and services is known as
less elastic than
The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
Farm revenues decrease.
The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
The law of diminishing marginal utility states that
endowment effect
The observation that people tend to value something more highly when they own it than when they don't is called the
equal to the highest value of an alternative use of the time and money spent on the class.
The opportunity cost of taking a semester−long economics class is
unattainable.
The points outside the production possibilities frontier are
positive
The price elasticity of an upward−sloping supply curve is always
the percentage change in quantity demanded divided by the percentage change in price
The price elasticity of demand is equal to
the percentage change in quantity supplied divided by the percentage change in price
The price elasticity of supply is equal to
patents and copyrights
The primary purpose of ________ is to encourage the expenditure of funds on research and development to create new products.
if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good.
The production possibilities frontier model shows that
maximum attainable
The production possibilities frontier shows the ________ combinations of two products that may be produced in a particular time period with available resources.
The NFL is concerned that raising ticket prices would be considered unfair
The quantity of tickets demanded to the Super Bowl is always greater than the quantity supplied. Which of the following is the best explanation why the National Football League does not raise the price of tickets to the level where the quantity demanded equals the quantity supplied?
the ability to exercise control over one's own resources within the confines of the law.
The term 'property rights' refers to
the study of situations in which people act in ways that are not economically rational
What is behavioral economics?
An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.
What is the difference between an 'increase in supply' and an 'increase in quantity supplied'?
This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic.
Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."
Households devote a very small portion of their income to salt purchases.
Which of the following could explain why the demand for table salt is inelastic?
There are many buyers and sellers.
Which of the following describes a characteristic of a perfectly competitive market?
The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.
Which of the following explains why a firm would be interested in knowing the price elasticity of demand for a good it sells?
bread
Which of the following goods would have the most inelastic demand?
They fail to ignore sunk costs.
Which of the following is a common mistake consumers commit when they make decisions?
$1,000 in cash
Which of the following is not a factor of production?
The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the
Which of the following statements about price elasticity of demand is true?
It is elastic at the highest prices and inelastic at the lowest prices.
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
Demand is more elastic in the long run than it is in the short run.
Which of the following statements about the price elasticity of demand is correct?
an increase the price of peanuts
Which of the following would cause a decrease in the supply of peanut butter?
through technological advancement which enables more output with the same quantity of resources
Without an increase in the supply of the factors of production, how can a nation achieve economic growth?
can produce more of something than others with the same resources.
You have an absolute advantage whenever you
complements
if cross price elasticity of demand for goods X and Y is negative, this means the two goods are
quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.
If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until
